Question 1

In a perfectly competitive industry

Accepted Answer

A)  each firm is a price maker. 
B)  no buyer or seller can influence the market price. 
C)  there is apt to be a shortage of sellers of output. 
D)  firms can never make an economic profit. 
A)  each firm is a price maker. 
B)  no buyer or seller can influence the market price. 
C)  there is apt to be a shortage of sellers of output. 
D)  firms can never make an economic profit.

Question 2

In a decreasing-cost industry, an increase in industry output will

Accepted Answer

A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve up. 
D)  shift each firm's short run supply curve up. 
A)  lead to a higher market price. 
B)  lead to a lower market price. 
C)  shift each firm's average fixed cost curve up. 
D)  shift each firm's short run supply curve up.

Question 3

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $8.00; AVC = $5.00; MC = $8.00; MR = $7.00. The firm should

Accepted Answer

A)  increase output. 
B)  decrease output. 
C)  increase price. 
D)  continue to produce its current output. 
A)  increase output. 
B)  decrease output. 
C)  increase price. 
D)  continue to produce its current output.

Question 4

For a firm in a perfectly competitive market, average revenue equals

Accepted Answer

A)  average cost. 
B)  the change in total revenue. 
C)  the market price. 
D)  price divided by quantity. 
A)  average cost. 
B)  the change in total revenue. 
C)  the market price. 
D)  price divided by quantity.

Question 5

When MR < MC for a firm, the firm should

Accepted Answer

A)  reduce its level of output. 
B)  stay at the same level of output. 
C)  stop producing. 
D)  increase output, unless P < AVC. 
A)  reduce its level of output. 
B)  stay at the same level of output. 
C)  stop producing. 
D)  increase output, unless P < AVC.

Question 6

An increasing-cost industry will have

Accepted Answer

A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping supply curve in the long run. 
D)  an upward sloping demand curve in the long run. 
A)  a perfectly elastic long-run supply curve. 
B)  a perfectly inelastic long-run supply curve. 
C)  an upward sloping supply curve in the long run. 
D)  an upward sloping demand curve in the long run.

Question 7

An industry in which an increase in output leads to a reduction in long-run per-unit costs is a(n)

Accepted Answer

A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry. 
A)  increasing-cost industry. 
B)  constant-cost industry. 
C)  break-even cost industry. 
D)  decreasing-cost industry.

Question 8

In the long run, the price for a perfectly competitive firm

Accepted Answer

A)  will be determined by the firm's supply and demand curves. 
B)  will allow for positive economic profits. 
C)  will equal marginal cost where marginal cost is at a minimum. 
D)  will equal the minimum average total cost. 
A)  will be determined by the firm's supply and demand curves. 
B)  will allow for positive economic profits. 
C)  will equal marginal cost where marginal cost is at a minimum. 
D)  will equal the minimum average total cost.

Question 9

The rate of production at which marginal revenue equals marginal cost is

Accepted Answer

A)  a point of negative profits for the firm. 
B)  what determines the equilibrium price in the market. 
C)  the firm's shutdown point. 
D)  the point where profits are maximized. 
A)  a point of negative profits for the firm. 
B)  what determines the equilibrium price in the market. 
C)  the firm's shutdown point. 
D)  the point where profits are maximized.

Question 10

For a perfect competitor, marginal revenue equals

Accepted Answer

A)  the slope of the demand curve. 
B)  average revenue divided by price. 
C)  price divided by average revenue. 
D)  the market price. 
A)  the slope of the demand curve. 
B)  average revenue divided by price. 
C)  price divided by average revenue. 
D)  the market price.

Question 11

-Refer to the above table. If the price is $6, the perfectly competitive firm should produce

Accepted Answer

A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units. 
A)  104 units. 
B)  105 units. 
C)  106 units. 
D)  107 units.

Question 12

A company finds that at its present level of production, MR = MC at $14, MC = AVC at $15, and MC = ATC at $20. Your advice to the firm regarding its short-run operations is

Accepted Answer

A)  to continue production, as it is earning an economic profit of $1 per unit. 
B)  to continue production, as it is earning an economic profit of $6 per unit. 
C)  to shut down. 
D)  to continue production at a loss. 
A)  to continue production, as it is earning an economic profit of $1 per unit. 
B)  to continue production, as it is earning an economic profit of $6 per unit. 
C)  to shut down. 
D)  to continue production at a loss.

Question 13

Marginal revenue

Accepted Answer

A)  cannot be used to determine the profit-maximizing rate of production. 
B)  is the change in total revenues resulting from a change in output. 
C)  is a change in revenue that is immeasurable and non-quantifiable. 
D)  cannot be effectively utilized when analyzing the perfect competitor. 
A)  cannot be used to determine the profit-maximizing rate of production. 
B)  is the change in total revenues resulting from a change in output. 
C)  is a change in revenue that is immeasurable and non-quantifiable. 
D)  cannot be effectively utilized when analyzing the perfect competitor.

Question 14

If price is below average variable costs at all rates of output, the quantity supplied by a perfectly competitive firm will equal

Accepted Answer

A)  zero. 
B)  the rate of output where price equals marginal cost. 
C)  the rate of output associated with the break-even point. 
D)  the rate of output where marginal revenue equals average fixed costs. 
A)  zero. 
B)  the rate of output where price equals marginal cost. 
C)  the rate of output associated with the break-even point. 
D)  the rate of output where marginal revenue equals average fixed costs.

Question 15

Under perfect competition, the firm must decide

Accepted Answer

A)  the best price to charge for its product. 
B)  the best rate of output it should produce. 
C)  the optimal level of advertising to engage in. 
D)  the optimal level of quality and the packaging that will maximize profits. 
A)  the best price to charge for its product. 
B)  the best rate of output it should produce. 
C)  the optimal level of advertising to engage in. 
D)  the optimal level of quality and the packaging that will maximize profits.

Question 16

The equation TR/Q is used to compute

Accepted Answer

A)  total cost. 
B)  average revenue. 
C)  demand. 
D)  marginal revenue. 
A)  total cost. 
B)  average revenue. 
C)  demand. 
D)  marginal revenue.

Question 17

A perfectly competitive firm faces a horizontal demand curve because it is

Accepted Answer

A)  a price taker. 
B)  a price maker. 
C)  a large firm in a small industry. 
D)  one of few firms in the market. 
A)  a price taker. 
B)  a price maker. 
C)  a large firm in a small industry. 
D)  one of few firms in the market.

Question 18

All of the following are characteristics of perfect competition EXCEPT

Accepted Answer

A)  homogeneous products. 
B)  each firm is a price taker. 
C)  product differentiation. 
D)  a lack of barriers. 
A)  homogeneous products. 
B)  each firm is a price taker. 
C)  product differentiation. 
D)  a lack of barriers.

Question 19

Which of the following is closest to a perfectly competitive market?

Accepted Answer

A)  the computer software market 
B)  the market for handmade guitars 
C)  the market for broccoli 
D)  the market for athletic shoes 
A)  the computer software market 
B)  the market for handmade guitars 
C)  the market for broccoli 
D)  the market for athletic shoes

Question 20

-Referring to the diagram, which of the following statements is INCORRECT?

Accepted Answer

A)  The equilibrium market price is $5, at which the industry demand and supply curves intersect. 
B)  If the individual firm raises its price, it will capture all sales in the market. 
C)  The individual firm takes as given the market price along the perfectly elastic demand curve "d." 
D)  The individual firm faces the going market price as determined by the industry. 
A)  The equilibrium market price is $5, at which the industry demand and supply curves intersect. 
B)  If the individual firm raises its price, it will capture all sales in the market. 
C)  The individual firm takes as given the market price along the perfectly elastic demand curve "d." 
D)  The individual firm faces the going market price as determined by the industry.

Exam 23: Perfect Competition

In a perfectly competitive industry

In a decreasing-cost industry, an increase in industry output will

Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $8.00; AVC = $5.00; MC = $8.00; MR = $7.00. The firm should

For a firm in a perfectly competitive market, average revenue equals

When MR < MC for a firm, the firm should

An increasing-cost industry will have

An industry in which an increase in output leads to a reduction in long-run per-unit costs is a(n)

In the long run, the price for a perfectly competitive firm

The rate of production at which marginal revenue equals marginal cost is

For a perfect competitor, marginal revenue equals

-Refer to the above table. If the price is $6, the perfectly competitive firm should produce

A company finds that at its present level of production, MR = MC at $14, MC = AVC at $15, and MC = ATC at $20. Your advice to the firm regarding its short-run operations is

Marginal revenue

If price is below average variable costs at all rates of output, the quantity supplied by a perfectly competitive firm will equal

Under perfect competition, the firm must decide

The equation TR/Q is used to compute

A perfectly competitive firm faces a horizontal demand curve because it is

All of the following are characteristics of perfect competition EXCEPT

Which of the following is closest to a perfectly competitive market?

-Referring to the diagram, which of the following statements is INCORRECT?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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